Matrix  acquired  164-acre  freehold  land  in  Labu  for  a  consideration  of MYR71.46m. We  raise our FV to MYR3.93 (from MYR3.80), a 21% upside and  maintain  BUY.  This  acquisition  is  important  to  replenish  Matrix’sexisting  Sendayan  TechValley  (STV)  landbank  to  ensure  thesustainability  of  its  high  gross  margin.  Based  on  indicative  selling prices  of  MYR30-35  psf,  we  expect  Matrix  to  make  50%  gross  margin from selling the industrial land plots. 

Another 164-acre  industrial land.  We are  positive on Matrix Concepts (Matrix)’s  acquisition  of  164.05-acre  freehold  land  in  Labu  for  a consideration  of  MYR71.46m.  This  land,  which  is  adjacent  to  STV’s southern side, is important to replenish the industrial park landbank, as itis  left  with  only  233  acres,  which  can  be  depleted  in  1-2  years.  The acquisition  will  be  completed  by  end-2014,  and  it  will  be  funded  via internal funds and borrowings.

A move to sustain high profit margins.  The land cost works out to be MYR10 psf. This is in line with the current market price, considering that no further conversion premium is required  as the land has already been converted  into  industrial  usage.  We  understand  that  there  are  already ready  buyers  looking  to  purchase  the  land  plots.  According  to management,  infrastructure  cost  of  only  MYR2-3  psf  (vs  MYR9  psf  for the existing STV)  will need to be incurred given the purpose of usage by the potential buyers.  Hence, with  indicative selling prices  of MYR30-35 psf and GDV of MYR170m, Matrix will be able to make about 50% gross margin by selling the industrial land plots, hence maintaining the overall group’s margin at 35-40%.  The indicative selling price is lower than the ongoing  ASP  of  MYR40-45  psf  in  STV,  as  the  location  of  the  land  is further in from the main road.

Forecasts.  We  make  no  changes  to  our  FY14-15  earnings  forecasts. We expect the company to achieve MYR650-700m new sales (sales in 1H  amounted to  MYR291m)  in FY14,  out of which about MYR100m will come from  industrial land sale.  We believe industrial land sales will be more material next year, given the presence of ready buyers for this new land.

Maintain  BUY.  We  maintain  our  BUY  rating  on  the  stock.  Given  the incremental value to our RNAV estimate,  we raise our FV  to MYR3.93 (from MYR3.80), based on an unchanged 10% discount to RNAV.

Source: RHB